China's Top-Down Take on Innovation

State-Run Model Is Limiting, Some Chinese Economists Say

By

Bob Davis

Sept. 29, 2013 4:18 p.m. ET

BEIJING—To understand why China has such a tough time producing world-class innovations, take a look at how the Chinese play games.

Ping pong tables are everywhere in public spaces and open to all comers, from kids to agile retirees, producing a reservoir of talent that has made China a ping pong innovator and champion. By contrast, basketball courts in China are generally locked up. Entrance is controlled by the state—in this case, school officials—shrinking the talent pool and the chance for youngsters to hone their moves. The result: basketball mediocrity.

For decades, China has followed a state-led innovation model, where science and technology ministries identify priority areas, fund them generously and send thousands of students overseas to study in those areas. In some fields, the approach has been successful, including space exploration, supercomputers and military technology. Now, China's leaders are looking to replicate that state-driven model in dozens of other technologies, including biotechnology, alternative energy and new materials.

ENLARGE

But many Chinese economists and scientists say the central-planning tack has come up short on new ideas, noting that these fields are well-trod technologically by the West. They are calling for China to move beyond a "catch-up" strategy.

"With innovation, there is serendipity. You need a lot of participants [because] only 1 in 1,000 ideas may succeed," said Bai Chong-en, an economist at Beijing's Tsinghua University. "It's just like ping pong, where there is a lot of grass-roots participation."

In preparation for a November meeting of the Communist Party leadership, China is putting together a reform plan that is supposed to guide the country over the coming decade. But with China's growth slowing to about 7.5% this year from 10.4% in 2010, economists inside and outside China worry about a far sharper slide ahead. China needs to step up its game, they argue, so it no longer relies as much on low-cost exports on the one hand, and immense state-owned oligopolies on the other.

But how?

Former World Bank chief economist Justin Yifu Lin argues that because China is still a developing nation, it can still grow by imitating Western technologies and producing them better or more cheaply. "Our innovation doesn't necessarily have to be based on invention," said Mr. Lin, who now teaches at Peking University.

Other economists disagree. "You have to let big ideas flow" to power economic growth in the future, said Cai Fang, a senior economist at the Chinese Academy of Social Sciences. "We're at a big turning point from government-led investment to innovation based on free-market growth."

In China, that's an especially tough transition. Chinese scientists complain that Beijing focuses too heavily on headline-grabbing efforts, like building supercomputers—it currently makes the world's fastest supercomputer, in a ranking done every six months by Top500, a group of leading computer scientists—rather than fundamental science that could spawn new industries.

China has become the world's No. 2 spender on R&D behind the U.S., but the U.S. spends 19% of its R&D budget on basic science—the kind of research that can spawn new fields over time—compared with just 5% for China, according to the U.S. National Science Foundation.

"Chinese politics is a major inhibiting factor—with so many circumscribed 'no-go zones' for research," said David Shambaugh, a George Washington University China scholar. Singapore's prime minister, Lee Hsien Loong, noted during a speech to a senior Communist Party school last year, "all eight Nobel Prize winners in science who are of Chinese descent either were or subsequently became American citizens."

Some Chinese startups have managed to handle the obstacles, including Tencent Holdings Ltd., whose WeChat talk-and-text service is a hit internationally. The company is politically as well as technologically savvy. Earlier this year, Tencent's chief executive, Pony Ma, joined China's nearly powerless but symbolically significant parliament, a sign the company had become part of the Chinese establishment.

Even so, Mr. Bai, the Tsinghua economist, says China's state-owned telecom giants still have huge power to decide which Internet-based ideas can make it commercially because they control China's telecom infrastructure. The monopoly firms "have their self-interest" to protect, he said.

In some instances, the state doesn't intervene enough to protect invention, China technology experts argue. Intellectual-property protection is weak and private domestic firms frequently are barred from competing in lucrative state-owned sectors, such as telecommunications, energy or electricity production.

But for the most part, say a number of economists in and out of China, the problem is too much state control, which snuffs out what's often called "curiosity-based" innovation. Research grants must be approved by science and technology bureaucrats who judge whether they fit into a pre-approved state project. Corruption, or simply bad judgment, can kill ideas.

Over the coming weeks, Chinese leaders will need to confront a fundamental question: How much are they willing to ease control, let markets operate more freely and encourage curiosity-based innovation? The more they pull back, the more they may reduce their ability to control society. The more they continue to dominate, the less they spur the kind of innovation that can create new technologies and industries.

I buy a palm sander from Walmart. A Black and Decker Sander, made in China. It lasts about 5 months before it dies on me, and I am not abusing it. I buy a 30 year old American made palm sander , a Black and Decker, made in america, pay 1/10 th the price. It works three times as well, is more powerful and has been working just fine for the past three years. In all honesty though, it's not the fault of the Chinese worker or anything Chinese. It's the fault of the corporate brass here. Tea Party, no problem with outsourcing our jobs to line your pockets, right?! Way to go Repubs. and Tea Partiers. Darn those welfare families , eh!? Tea party, Everything is theirs and O'Bamas' fault. Have a nice night Tea Party. Oh, and Tea Party, thanks for getting yourselves and the right wing Repubs out of office for the next thirty years. We'll miss you guys... Not!!!!!! Waynes World, Waynes World party on, Tea party!

China has certainly been "innovative" in the past decade or more, but IP theft, billions of dollars of pirated goods exported around the world, and "innovative" cyber-spying to steal corporate and miltary secrets shouldn't really be counted as responsible innovation.

Are they intending to improve upon this?

I'll give them credit for the accidental discovery of gun powder centuries ago. It has been slow since then.

Here's a technology transfer that involved no Chinese spying, just an American corporation trying to make a buck by making friends in China:

'WASHINGTON — A Canadian subsidiary of the Connecticut-based military contractor the United Technologies Corporation pleaded guilty on Thursday to federal charges that it had illegally helped the Chinese government develop an attack helicopter now in service there.

... It is being mass produced in China...

Technology for the engines, the authorities said, had originally been created for United States military helicopters.

According to the settlement, Pratt & Whitney Canada pleaded guilty to illegally exporting to China the American military software used to operate the engines.

Pratt & Whitney Canada “anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China” that may have been worth $2 billion to the company, according to the Justice Department.'

What the billionaires have to do above all to make China happy is press for an increased H1-B high tech visa program. China gets a great deal of it's Western technology through this program, and strives for more with subsidized visits to China for Western technologists, high tech parks devoted exclusively to capitalizing on Western inventions that are brought back by overseas Chinese, etc.

These transfers range from legal and aboveboard to hard core spying, and everything in between. Western corporations operating in China are legally obligated to transfer some technology, and may give much more to ingratiate themselves with Chinese leaders, who reward their friends and punish their enemies.

Luckily American billionaires are eager to please China [and India, etc.] by pushing H1-B to the max, which lowers their American wage costs, and helps train people to move more jobs to the low wage countries. The entire American establishment, knowing their bread is buttered on the 'corporate' side, enthusiastically push for raising H1-B quotas: immigration 'reform' would greatly increase it, even in a very bad job market for Americans.

While the Sandler Foundation provided ProPublica with significant financial support, it has also received funding from the Knight Foundation, MacArthur Foundation, Pew Charitable Trusts, Ford Foundation, the Carnegie Corporation and others. ProPublica and the Knight Foundation have various connections. For example, Paul Steiger, President of ProPublica, is a trustee of the Knight Foundation.[10] In like manner, Alberto Ibarguen, the President and CEO of the Knight Foundation is on the board of ProPublica.[11] In 2010, it received a two-year contribution of $125,000 each year from George Soros' Open Society Foundations.

The Pro Publica article does illustrate deep earth injection of toxic waste in the U.S. that may likely be problematic, to put it euphemistically.

Note that the person in the article quoted as endorsing copying Western technology is very senior and the most successful economist in China, close to government thinking.

'Former World Bank chief economist Justin Yifu Lin argues that because China is still a developing nation, it can still grow by imitating Western technologies and producing them better or more cheaply. "Our innovation doesn't necessarily have to be based on invention,"'

With a Chicago PhD in economics, he was a captain in the Taiwanese army, who defected by swimming to Mainland island Xiamen, braving possible bullets if he was spotted, leaving his pregnant wife and child behind.

The American billionaires getting richer by cooperating with China, moving technology and jobs there, think they're part of 'Chamerica,' happy country of the future and efficient technology. They have no idea of the extreme emotions and hatred of the West that would drive such a defection, or they're careful not to see them while they ring their cash registers.

'Chinese Industrial Espionage' quotes numerous Chinese government documents that stress that original, independent research is expensive and chancy. They point out the advantages of aquiring Western technology, by hook or by crook, and adapting it to Chinese manufacture. If you can make a little tweak to it fine, the important thing is not having to pay for it, and good luck suing in Chinese Communist Party controlled courts.

It's been clear since Nixon's opening to China that China acts this way, but the technological and bureaucratic structure that exists there to support tech acquisition is staggering, far beyond that of any other country. And of course the Chinese are very adept at copying and manufacturing high tech.

Last I heard Henry Kissinger was still profitably going to China, alleviating in a small way the enormous trade gap.

After WW2 US airlifted containers of patents and research materials from Germany, and the Americans don't think of that as stealing but an act of American Exceptionalism. I think that was just plain robbery and exceptional hypocrisy.

The fault lies with you because you are cheap. There are always lowly insane people who want to spend pennies and thought that it would last forever. You want a life time use, dig your pocket and buy the German product. You are really cheap and greedy.

Of course the baboons will say that they are better and smarter than the chimps, it's a natural phenomena. Nevertheless you cannot twist history to prove that your ignorance is correct. The collapse of the USSR was due to their inability to sustain their economy............... a situation your country is marching right into now.

You may refer to the book by Dmitry Orlov "Reinventing Collapse:The Soviet Example and American Prospects", published in 2008

Soviet Union went to space before the Americans and they matched each and every of the US military superiority with that of theirs. Unfortunately they lost the competition due to economic pressure. The Soviet Union couldn't survive the debt and the budget deficit that's mounting every year, and that's what the US is facing now.

That was even a tiny itsy bitsy fine in the tens of millions, while the London Whale of JP Morgan Chase was also freed from getting indicted while the victims, which are the common shareholders are being penalized with over 11 billion USD. With that kind of justice you have in your country and yet you are still nosing around at China. No wonder your country is going down the drain.

Please don't spin. That case only involved a small fine and no jail term on anyone (a misdemeanour). When a US company is careless about obeying the US law, then that's nothing more than a US domestic affair. How could you equate that to China's stealing?

Can you pick just one JUDGEMENT that's based on the world appointed arbiter of last resort which is the WTO?

That's called human cooperation. And I am yet to hear from you on why there isn't a case of China being accused of stealing IP at the WTO, which of course has been the mutually agreed arbiter of last resort.

Never mind, that's the Chinese business. In any case, China has just had 64 independent years free from foreign domination, that compared to the US 300 years. For that same span of time of 64 year into independent condition, the US was still legalizing the lynching of slaves and burning them on stake.

Spot on, but it's a pure waste of your time reasoning with his one Bill. Beagle sits in an internet cafe in Indonesia somewhere. His arguments are fallacious and continued engagement with him results in Ad Hominem or Straw Man arguments. If you go further , he just outright insults, sometimes racially.

Chinese have mastered the art of espionage and they r using the MFN (most favored nation )status given to them by USA and western allies,to their best advantage but their products are cheap only,totally spurious,unbelievable,almost zero endurance,unreplaceable,faulty,no standards,slave labor made,deceptive,failing mid between.full of cheating,----the list is long.it is only American-Western companies producing with their patented ,tested designs manufacturing various products getting walmarted world wide publicity and sales.now some Chinese tycoons have purchased pharmaceutical companies their medicines will **ll more patients then cure its sure.their fast trains are colliding fast and noble prize winners are jailed.innovations are not born in jails or concentration camps.

No Bill, the Chinese were just thinking that it's stupid to re-invent the wheel. And that humans had progressed much from apes precisely because humans used to share their knowledge. Your western mentality of selfishness is an obstacle to human progress.

Stealing? Ummmm, spoils of war my friend. We lost tens of thousands, expended enormous treasure, and we (and the allies) won the war. We got what we wanted out of Germany (and many scientists were more than eager to run to the Americans rather than roll the dice with the Soviets).

If you are going to attempt to mock us, then please at least attempt to understand the history of what actually occurred before you post such a thing.

This eagle fellow is interesting, he reminds me of a lot of the tea party types in the US. Basically a blind nationalist, who is incapable of seeing how truly corrupt his country has become.

Hey Eagle, guess what, I know how corrupt my government is and can be on a daily basis. Can you accept this concept about your government? Can you accept the concept that your government elite are absolute frigging billionaires thanks to obscene graft, and the like?

I can accept that my government makes horrendous decisions in favor of corporations due to a type of legalized graft called campaign contributions.

So they had a few achievements - mostly copied, just like China - but the people stayed poor, suffered from terrible health care and did not have the benefit of the vast majority of innovations enjoyed by the civilized world. USSR never matched US military superiority, especially when electronic age came along - they were a giant on clay feet, that's why they fell apart. Enough with the propaganda, Eagle - its nauseating.

Our ruling class does not like going to jail, Eagle Kobar, so whether it's a tiny attack helicopter indiscretion, or a $10 trillion mortgage scam, they usually arrange it so they don't have to. What's the point of being a billionaire if you're in jail?

No Beagle. You've got it all wrong man. We don't burn people on steak, we burn barbecue sauce on steak . We do it every year on independence day to celebrate our freedom from tyranny and oppression. What day do you guys celebrate freedom? Don't have one? Whoops sorry . Waynes World, Waynes Worlds. Part on P.R.C.!

Don't twist my words. I said you may safely call me a 50 Dollarian if you confess to being a 50 center. I would be most honoured if I could be working for my country even if I have to pay them instead. Unfortunately I am not. In any case, this is a forum of faceless names and a poster is survived by what he writes and not what he is, which of course is unverifiable. I am quite disappointed but amused at how the anti China elements would casually and callously making assumptions by sheer speculations. That is the attitude with which you could affront your colonized nations but not to a sovereign country of 1.4 billion people who, despite your belief, do retain the self respect and honour of being the people of China. You and the rest have overextended your slighting on us.

Thank you for confirming my statement that you work for the CCP. There's nothing wrong with that, and I would welcome the opportunity to have an open debate with the CCP about its practices and beliefs. However, I do object to astroturfing - where the Party Propaganda Department hires bloggers under false colors in order to give a false impression of popular support for the Party line - and I do object to your adamant refusal ever to engage in reasoned debate and to respond in a reasoned way to criticisms of the Party. Attacking other countries is not a defense of the Party, it's a transparent evasion.

I am standing on the side of the creditor while you are on the side of the bankrupted debtor, so while you may safely call me the 50 dollarian, you are the true 50 cents as detailed in the following link.

Matthew,You must be new here. Eagle is an employee of the Chinese Communist Party. He is one of the tens of thousands of people the CCP pays to post pro-Party and anti-Western comments on the web in China and the West. In China, they are called "50-cent men," in reference to the amount they are paid per posting. No one pays them any mind in China - their sole stock in trade is to attack the West, and never, ever even attempt to justify the CCP's actions.

If you say that it's the spoils of war, then China can say that it can take anything from the US as compensation because the latter invaded, pillaged, raped and looted China earlier.

About corruption, of course there are corruptions in every government on the surface of this earth. The difference between me and you (perhaps): you have got a loose mouth and tolerate the malignment of others without proof but I don't. The Chinese won't accept horrendous decisions by the Chinese government because like in the past, the Chinese will take the emperor and ministers to the Heavenly gate and hang them. But when the government has done well and is doing good, why should we malign them?

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